01—Abstract
Summary
Summary of the 10-K filed February 27, 2014. Cited figures are marked; the original filing is the authoritative source.
Sempra Energy's 2013 Form 10-K (combined filing with SDG&E and SoCalGas) shows a year of solid earnings growth driven by the California utilities and a major financing and asset-recycling program.
Consolidated earnings rose 17% to $1.0 billion, and diluted EPS increased to $4.01a from $3.48, though 2012 comparisons were distorted by a $239 million after-tax Rockies Express impairment. Revenues reached $10.6 billion, up about 9%, while total debt-to-capitalization improved to 52% from 55%. The 2012 General Rate Case final decision, approved in May 2013 and effective retroactively to January 1, 2012, contributed meaningful one-time earnings at both utilities, and SoCalGas and SDG&E together generated the majority of company earnings.
The most significant negative item for investors is SDG&E's 20% interest in the San Onofre Nuclear Generating Station, which Edison decided in June 2013 to permanently retire. Sempra recorded a $200 millionb pretax ($119 million after-tax) loss from plant closure, and the remaining regulatory asset of $303 million depends on future CPUC decisions in the ongoing Order Instituting Investigation. SDG&E also carries roughly $330 million of regulatory assets tied to 2007 wildfire litigation costs in excess of insurance, and recovery requires future regulatory approval.
Management expects SoCalGas to limit dividends to fund capital projects, and SDG&E did not pay common dividends in 2013. Looking forward, Sempra is pursuing growth through the Cameron LNG liquefaction project (an estimated $6 to $7 billionc incremental investment, with a 50.2% stake), Mexican pipeline construction through IEnova (which sold 18.9% of its shares in March 2013 for $574 million net), and renewables. Capital expenditures are expected to be about $3.2 billion in 2014, with the California Utilities accounting for $2.2 billion.
The board raised the quarterly common dividend to $0.66d per share in February 2014. The company also reported approximately $814 million of cash held in non-U.S. jurisdictions that is not immediately available for U.S. operations without repatriation.
02—Key points
Key Highlights
- Consolidated earnings rose 17% to $1.0 billion; diluted EPS increased to $4.01 from $3.48, helped by the retroactive 2012 GRC decision and the absence of the 2012 Rockies Express impairment
- Revenues of $10.6 billion, up about 9% year over year, with electric revenues up 8% and natural gas revenues up 14%
- SONGS early retirement resulted in a $200 million pretax ($119 million after-tax) loss at SDG&E, with a remaining regulatory asset of $303 million subject to CPUC decision
- Debt-to-capitalization improved to 52% from 55%, and Moody's upgraded SDG&E and SoCalGas unsecured ratings to A1 in January 2014 (Sempra Energy remained BBB+)
- Cameron LNG liquefaction project advanced: DOE issued conditional export authorization in February 2014, with an estimated $6 to $7 billion incremental investment and a 50.2% joint venture interest
- Sold one 625-MW block of Mesquite Power for $371 million in February 2013 and sold 50% stakes in two solar projects to ConEdison Development for $175 million; the remaining Mesquite block is being marketed for sale
- Quarterly dividend increased to $0.66 per share (annual $2.64) from $0.63, while SDG&E paid no common dividend to Sempra in 2013 and SoCalGas dividends are expected to be reduced to fund capital programs
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 27, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $10.56B$9.65B | +9.4% |
| Interest Expense | $559.00M$493.00M | +13.4% |
| Net Income | $1.00B$859.00M | +16.5% |
| EPS (Basic) | $2.05$1.78 | +15.2% |
| EPS (Diluted) | $2.00$1.74 | +15.2% |
| Shares Outstanding (Basic) | 487.73M482.69M | +1.0% |
| Shares Outstanding (Diluted) | 498.66M493.39M | +1.1% |
05—Questions
Frequently Asked Questions
How much is SDG&E exposed to the San Onofre nuclear plant retirement?
SDG&E owns 20% of SONGS. After Edison decided in June 2013 to permanently retire Units 2 and 3, SDG&E recorded a $200 million pretax loss and established a $303 million regulatory asset, which is included in Other Regulatory Assets. Recovery depends on the CPUC's Order Instituting Investigation, with a decision on rate recovery of the investment expected in the first half of 2014. Management has concluded recovery of the remaining balance is probable, but any shortfall would result in an additional charge against earnings.
What is the status of the 2007 wildfire litigation costs?
SDG&E's settlement payments and estimated remaining costs total about $2.4 billion, exceeding its $1.1 billion of liability insurance and approximately $824 million recovered from third parties. SDG&E has recorded $330 million of regulatory assets for the excess amount, based on its assessment that recovery in rates is probable, but this requires future CPUC approval. If recovery were deemed no longer probable, an after-tax charge of up to $186 million could result. About 40 cases remain to be resolved.
What drove the earnings increase and what might not repeat?
The 2013 earnings increase was driven by the May 2013 CPUC final decision on the 2012 General Rate Case, which contributed $52 million at SDG&E and $25 million at SoCalGas for the retroactive 2012 impact, along with the $44 million after-tax Mesquite Power gain and $24 million from solar sales. These benefits are largely nonrecurring. Offsetting factors included the $119 million SONGS charge, $63 million of tax expense tied to the IEnova reorganization, and noncontrolling interest earnings of $79 million, up from $55 million.
How is Sempra funding its growth projects?
Sempra expects to fund its 2014 capital expenditures of about $3.2 billion largely through operating cash flow and debt issuance at the California Utilities, and through project financing and joint ventures for international and U.S. gas and renewable projects. The Cameron LNG project is expected to be mostly project-financed, with Sempra's equity contribution largely provided through contribution of existing Cameron LNG assets valued at about $1 billion. Sempra also raised about $574 million from IEnova share sales and used asset sale proceeds to reduce commercial paper.
What are the main risks to the dividend and capital structure?
Sempra's ability to pay dividends depends almost entirely on cash flows from subsidiaries, which can be restricted by regulation, contracts, and CPUC capital structure rules. At year-end 2013, restricted net assets of wholly owned subsidiaries totaled $6.2 billion. Credit ratings also matter: a downgrade would raise borrowing costs and could require collateral on derivative positions. Additionally, about $814 million of cash sits in non-U.S. jurisdictions and repatriating it may trigger U.S. taxes.
06—Continue